Vacation Accrual - how to account for the liability?

Discussion in 'Accounting' started by JG Garabito, Feb 14, 2004.

  1. JG Garabito

    JG Garabito Guest

    I need your advice on "How I should record vacation accruals"...
    I recently took over the grant mgmt/fund accounting for a non-profit and I
    have some employees who's salaries are "Grant Funded" and am stumped on how
    to record the vacation accruals under the grants. Currently there is some
    (50 hrs) vacation time earned in the grants and it is not recorded in any
    way. Shouldn't it be an entry every month to show the accrual liability?

    any insight will be appreciated.
     
    JG Garabito, Feb 14, 2004
    #1
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  2. "JG Garabito" <> wrote
    > I need your advice on "How I should record vacation accruals"...
    > I recently took over the grant mgmt/fund accounting for a non-profit and I
    > have some employees who's salaries are "Grant Funded" and am stumped on

    how
    > to record the vacation accruals under the grants. Currently there is some
    > (50 hrs) vacation time earned in the grants and it is not recorded in any
    > way. Shouldn't it be an entry every month to show the accrual liability?
    >
    > any insight will be appreciated.



    I suppose it would depend on the entity's accounting method and whether or
    not the vacation pay is contractual in that it must be paid (not that it
    might be paid) at some future date. Example: Employees must take their
    vacation by 12-31 or they'll be paid for it. Then book the vacation pay.
    Otherwise, it probably should fall as an expense when/if the employee takes
    it, because it's likely that an employee would or could leave employment
    without ever taking their accrued vacation.


    --
    Paul A. Thomas, CPA
    Athens, Georgia
    taxman at negia.net
     
    Paul A Thomas, Feb 14, 2004
    #2
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  3. JG Garabito

    Tony Guest

    Paul A Thomas said:
    >
    >
    >"JG Garabito" <> wrote
    >> I need your advice on "How I should record vacation accruals"...
    >> I recently took over the grant mgmt/fund accounting for a non-profit and I
    >> have some employees who's salaries are "Grant Funded" and am stumped on

    >how
    >> to record the vacation accruals under the grants. Currently there is some
    >> (50 hrs) vacation time earned in the grants and it is not recorded in any
    >> way. Shouldn't it be an entry every month to show the accrual liability?
    >>
    >> any insight will be appreciated.

    >
    >
    >I suppose it would depend on the entity's accounting method and whether or
    >not the vacation pay is contractual in that it must be paid (not that it
    >might be paid) at some future date. Example: Employees must take their
    >vacation by 12-31 or they'll be paid for it. Then book the vacation pay.
    >Otherwise, it probably should fall as an expense when/if the employee takes
    >it, because it's likely that an employee would or could leave employment
    >without ever taking their accrued vacation.
    >


    Paul,

    This is an area that I have been struggling with, and received different advice
    from CPAs here in California. The State, in its infinite wisdom, has decreed
    that Sick Time/Personal Time Off is a "benefit", and can be subject to a "use
    it or lose it" policy, if it is clearly stated in the employee manuals.

    However, accrued vacation is considered "earned but unpaid compensation". As a
    result, you *have* to pay it out at termination. I cannot count the number of
    arguments I have gotten into with owners over this one, but the law is
    extremely clear.

    To respond to the OP, we usually book it on a monthly basis to a Vacation
    Accrual "Other Liability" account, classed by employee. It is a pain in the
    butt, but it also helps the HR person track outstanding vacation.

    Tony
    Is someone messing with your credit?
    Need a plan to get out of debt?
    http://www.kestlewealth.com
     
    Tony, Feb 14, 2004
    #3
  4. "Tony" <> wrote
    > This is an area that I have been struggling with, and received different

    advice
    > from CPAs here in California. The State, in its infinite wisdom, has

    decreed
    > that Sick Time/Personal Time Off is a "benefit", and can be subject to a

    "use
    > it or lose it" policy, if it is clearly stated in the employee manuals.
    >
    > However, accrued vacation is considered "earned but unpaid compensation".

    As a
    > result, you *have* to pay it out at termination. I cannot count the number

    of
    > arguments I have gotten into with owners over this one, but the law is
    > extremely clear.


    If you "have" to pay it out, then you know the amount to book, it's actually
    a liability that the business owes.


    > To respond to the OP, we usually book it on a monthly basis to a Vacation
    > Accrual "Other Liability" account, classed by employee. It is a pain in

    the
    > butt, but it also helps the HR person track outstanding vacation.


    Yup. Mostly lots of AJE's and such to move it from line to line as it's
    earned and as it's used.


    Oh yeah, I'm damn glad I don't live in California.


    --
    Paul A. Thomas, CPA
    Athens, Georgia
    taxman at negia.net
     
    Paul A Thomas, Feb 14, 2004
    #4
  5. JG Garabito

    Des Perado Guest

    Tony, your experience is similar to mine.
    Vacation pay is covered by law and is earned compensation. In the
    Construction industry where employees move from job to job and from
    employer to employer throughout the year, the Vacation Pay is usually
    paid out on each paycheck. As a bookkeeper, this would be my
    preferred way to do it. Pay it out each pay period rather than accrue
    it, but then you would catch Hell from employees who had no money come
    Vacation time because they didn't have the discipline to keep some of
    their Vacation Pay for Vacation time. BooHoo, poor little darlings.
    Sick time and personal time off are usually just Company Policy - not
    legislated benefits and hence the 'Use it or Lose it' approach. In
    large unionized workplaces, Sick time and personal time off usually is
    described in the Union Contract and the Employer must follow those
    rules.
    This is always an area that causes problems for the Employer.
    Employees are exceedingly clever at determining how they were cheated
    on these things.
    Des

    "Tony" <> wrote in message
    news:...
    > Paul A Thomas said:
    > >
    > >
    > >"JG Garabito" <> wrote
    > >> I need your advice on "How I should record vacation accruals"...
    > >> I recently took over the grant mgmt/fund accounting for a

    non-profit and I
    > >> have some employees who's salaries are "Grant Funded" and am

    stumped on
    > >how
    > >> to record the vacation accruals under the grants. Currently there

    is some
    > >> (50 hrs) vacation time earned in the grants and it is not

    recorded in any
    > >> way. Shouldn't it be an entry every month to show the accrual

    liability?
    > >>
    > >> any insight will be appreciated.

    > >
    > >
    > >I suppose it would depend on the entity's accounting method and

    whether or
    > >not the vacation pay is contractual in that it must be paid (not

    that it
    > >might be paid) at some future date. Example: Employees must take

    their
    > >vacation by 12-31 or they'll be paid for it. Then book the

    vacation pay.
    > >Otherwise, it probably should fall as an expense when/if the

    employee takes
    > >it, because it's likely that an employee would or could leave

    employment
    > >without ever taking their accrued vacation.
    > >

    >
    > Paul,
    >
    > This is an area that I have been struggling with, and received

    different advice
    > from CPAs here in California. The State, in its infinite wisdom, has

    decreed
    > that Sick Time/Personal Time Off is a "benefit", and can be subject

    to a "use
    > it or lose it" policy, if it is clearly stated in the employee

    manuals.
    >
    > However, accrued vacation is considered "earned but unpaid

    compensation". As a
    > result, you *have* to pay it out at termination. I cannot count the

    number of
    > arguments I have gotten into with owners over this one, but the law

    is
    > extremely clear.
    >
    > To respond to the OP, we usually book it on a monthly basis to a

    Vacation
    > Accrual "Other Liability" account, classed by employee. It is a pain

    in the
    > butt, but it also helps the HR person track outstanding vacation.
    >
    > Tony
    > Is someone messing with your credit?
    > Need a plan to get out of debt?
    > http://www.kestlewealth.com
    >
     
    Des Perado, Feb 14, 2004
    #5
  6. JG Garabito

    Ron Todd Guest


    >Oh yeah, I'm damn glad I don't live in California.


    Odds are you eventually will be as California is the model of what a
    very large group of people are working overtime to apply to the other
    states.



    Best Regards.

    *****************************************
    Boycott list:

    Belgium, France, Germany, Finland, Sweden, Switzerland, PRC, Iran, Syria,
    Hollywood, San Francisco, Massachusetts, New York City, Sierra Club, ACLU,
    Movies of the first blacklist, Turner, Madonna, S. Crowe, Dixie Chicks, Cher, U2, rapp,
    Trudeau, W.Miller, Disney, ABC news, CBS news, NBC news, CNN, PBS, B&H Photo Video, Heinz
    Foods, Ontario & Quebec provinces,

    Sometimes the only influence you have is to say, "No, I'm not buying."

    For those who are unclear about the situation, California is the Clinton - Davis model for the rest of the United States of America.
     
    Ron Todd, Feb 14, 2004
    #6
  7. "Des Perado" <> wrote in message news:<>...
    > Tony, your experience is similar to mine.
    > Vacation pay is covered by law and is earned compensation. In the
    > Construction industry where employees move from job to job and from
    > employer to employer throughout the year, the Vacation Pay is usually
    > paid out on each paycheck.


    I'm in the Indiana construction industry, and that's not the norm
    here. Here we accrue it.


    >As a bookkeeper, this would be my
    > preferred way to do it. Pay it out each pay period rather than accrue
    > it, but then you would catch Hell from employees who had no money come
    > Vacation time because they didn't have the discipline to keep some of
    > their Vacation Pay for Vacation time. BooHoo, poor little darlings.


    You really could be a little nicer to them - they're earning your pay.


    > This is always an area that causes problems for the Employer.
    > Employees are exceedingly clever at determining how they were cheated
    > on these things.


    Have you been caught cheating them? Damn those clever bastards!

    FWIW, we accrue per week. For example, if an employee is earning one
    week of vacation per year, we accrue .769 of a day each week. (They
    don't accrue if they are paid for less than 30 hours.) THe biggest
    pain I have is adjusting when they receive a raise.

    It isn't that much of a hassle to reconcile, really. I'd much rather
    do that the the fixed assets. :)

    Angela
     
    Angela Thornton, Feb 17, 2004
    #7
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